Build Your Emergency Funds

When I was newly married in 2001, I had $250 to my name in a savings account.

I forgot to mention a minor detail – I had about $27,000 in credit card debt from all my spending in college.

The only good thing was that I had a good job which I am so thankful for. You can read more here on how I got out of debt.

From a financial perspective, to say I was stressed would be an understatement.

I was in a financial nightmare.

You always start going up the moment you realize that you have hit the rock bottom.

That is what happened in my case. I knew I had to change my life style and my spending habits to get out of the self inflicted mess.

Now, I am glad it is history.

U.S. National Statistics on Savings

According to CNBC, “one in three American families don’t have any savings, including 10% of those who earn more than $100,000 a year, according to a survey of 7,845 people by the Pew Charitable Trusts.

A medical emergency or a job loss could push many households to the financial brink. When faced with financial shock, including car bills, home repairs or medical emergencies, 41% said they don’t have enough saved to pay a $2,000 bill.”

Seriously, can you believe it? 10% of people who earn more than $100,000 a year, don’t have any savings.

A Simple Incident Wiped Out My Savings

When Sarah and I were living in an apartment, there was a freon leak, that kept the AC running on and on for a couple of days during peak summer.

Finally, I realized we had a problem, called maintenance, and got the issue fixed.

When I received my utility bill, it was $300 for the month and nearly wiped out my savings.

If you are living paycheck to paycheck, I get it, I have been there.

After I had paid off my credit card debt, I was debt free. However, I didn’t have any savings either.

This went on for few months. I was living within my means and my savings account wasn’t growing.

This is when I realized that I had to do something about it.

Just because I am debt free, nobody is going save money for me. I needed to act on it.

Automatic the Savings is what worked for me.

Building Your Emergency Funds

Automate Your Savings

It is often said – “Pay Yourself First”, or in other words, “first money is the best money”.

I automated my savings to build up the emergency fund.

As soon as I received my paycheck, a portion ($100) would automatically go into a savings account that I wouldn’t touch.

Within one year, I had saved $2400 in savings.

The simple truth was I didn’t see this money in my checking account.

I couldn’t spend what I didn’t have. Out of sight, out of mind. It was that simple.

How Much Should You Set Aside As Emergency Funds?

Every financial expert has a theory and an opinion. Depending on who you talk to, a financial expert would suggest saving up to 3 months of your living expenses to 12 months of your living expenses. Of course, the more the better.

If you don’t have any savings to your name, this could sound like a mammoth task. Don’t give up.

How about building up your first $1000 emergency fund? Or how about building up your first $500 emergency fund?

Once you reach $500 goal, pat yourself in the back, and get back to building up your emergency funds to $1000. Then, continue till you save up to one month of living expenses. Keep it going until you save at least 6 months of your living expenses.

You owe it yourself to build your emergency funds. No one else is going to do it for you. I am sure if you put your mind to it, you can do it.

Related

8 thoughts on “Build Your Emergency Funds”

Here is what I do:
1. I like the rule “pay me first”. On pay day, I automatically move 20% of the money into savings. I decide what to do with this saving later.
2. What is left in my checking account is used to pay the bills, mortgage, and the rest is of the money allocated for living expenses.
3. Use cash for my expenses. It is easier, also makes it easy to read the bank monthly statements.

What I didn’t spend I added to a jar. What I sold as items not used is added to same jar. This money becomes part of my holiday spending.

Another idea for emergency fund: my colleague has a hobby. All the money from the hobby are redirected to the emergency fund.

I like this blog and think it can be a good help for many
of the young people who are in the same situation as you
have been. You found the way out and are able to give good
advice here on your blog. For me, English is my 3th language,
I can find words explained which I often have been searching
for. Thank you, keep doing the good work.
Erika

Thank you for visiting Stretch A Dime! I am so glad you liked the post. Hope to see you more here. If you have any personal finance questions, please give me a shout, and I would be happy to share my opinion.

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Hi, I am Michael! I have been writing on personal finance, investing, and frugal living since 2015. Dad, husband, father of two loving daughters, DIY investor, and a perpetual learner. Learn more about me.